For rupee trade, the RBI allows banks to open vostro accounts in 22 different countries

By allowing banks to open Vostro accounts from 22 countries, the Reserve Bank of India (RBI) has made a significant effort to improve the reputation of the Indian Rupee abroad

By allowing 20 Indian banks to open 92 Special Rupee Vostro Accounts (SRVAs) with partner banks from 22 countries, the RBI has taken a significant step. This makes it possible for exporters and importers from these countries to conduct business in their own currencies, facilitating easier and more effective trade procedures.

For the Special Rupee Vostro Accounts, the following nations are eligible:

Bangladesh, Belarus, Botswana, Fiji, Germany, Guyana, Israel, Kazakhstan, Kenya, Malaysia, Maldives, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda, and the United Kingdom. This action is anticipated to strengthen ties between India and these countries on the economic front.

Joint currency agreement with the UAE Central Bank:

An important development is the Memorandum of Understanding (MoU) that the RBI and the Central Bank of the UAE signed on July 15, 2023, allowing exporters and importers to invoice and pay in their respective domestic currencies. This agreement is anticipated to strengthen trade ties between India and the United States and facilitate the development of a bilateral foreign exchange market.

Framework for International Trade Settlement in INR:

In February of this year, the RBI introduced a framework to permit international trade invoices and payments to be made in Indian Rupee. This action promotes the expansion of international trade, with a focus on enhancing Indian exports and meeting the rising demand for INR as a medium of exchange. Any partner nation conducting INR-denominated trade with India is subject to the framework.

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In order to facilitate international trade settlements in INR for invoicing, payment, and export/import settlements, the Directorate General of Foreign Trade (DGFT) incorporated provisions in the Foreign Trade Policy. According to RBI guidelines, export realisations in INR are now eligible for export benefits and the fulfilment of export obligations.

Key Features of the Vostro Account

A Vostro account is a type of account that a foreign bank holds in its home currency with a correspondent bank in another country.

Its purpose is to facilitate international trade and cross-border transactions by allowing foreign banks to hold funds and settle transactions in the correspondent bank’s local currency.

Correspondent Bank: The correspondent bank is the bank in the foreign country that holds the Vostro account on behalf of the foreign bank.

Two-Way Communication: Vostro accounts require two-way communication between the foreign bank and the correspondent bank in order for cross-border transactions to be transparent and efficient.

Vostro accounts are frequently used for invoicing and payments in local currencies, which lowers the cost of currency conversion and streamlines business dealings.